COMPANY REPORTS

COMPANY REPORTS;Shift by Company Will Bring in More Outsiders

By KURT EICHENWALD

Published: January 16, 1996

Responding to widespread criticism of insider domination of the company's board, the directors of the Archer-Daniels-Midland Company yesterday unanimously approved a series of proposals that would turn majority control of the board over to a group of outside directors, according to company officers and a member of the board.

Under the proposals, several of the 17 current directors would not be able to stand for re-election at the next annual meeting of Archer-Daniels in the fall.

But some large investors said that such changes did not go far enough in addressing the problems at Archer-Daniels, the agribusiness giant. As a result, at least one influential institutional investor said it would begin preparing its own proposals on revamping the board and seek a shareholder vote.

The recommendations were presented in a report by a corporate governance committee formed at the last annual meeting in October.

"The board has accepted the report unanimously, and approved every proposal without exception," said Ray A. Goldberg, a professor of business at Harvard University who helped lead the governance committee. "This makes A.D.M. consistent with the best governance procedures of all the major corporations in the United States."

Still, little change is expected anytime soon at the company, which is based in Decatur, Ill. At yesterday's meeting, some current outside directors were named to board committees. But the composition of the full board is not expected to change until at least the October meeting.

The governance committee was formed as Archer-Daniels faced a revolt by big investors that resulted in as much as 20 percent of the shares being voted against the company's slate of directors at the meeting last October.

The investors said that the directors were failing to treat a Federal criminal investigation of the company's business practices seriously, in large part because of their close ties to management. The investigation concerns accusations that senior Archer-Daniels officers engineered a widespread price-fixing conspiracy with competitors.

Three grand juries are investigating whether Archer-Daniels conspired to fix prices for several food additives and animal feed, including lysine, high-fructose corn syrup and citric acid. The investigation was sparked by Mark Whitacre, a former senior executive at Archer-Daniels who worked for several years as a secret informant for Government prosecutors.

Despite the intended changes, some critics of the company remained unimpressed.

"What you have got here is a very minimal response," said Edward Durkin, director of special projects for the United Brotherhood of Carpenters, which owns about 775,000 shares of Archer-Daniels. "And it's hard to tell at this point whether the response means anything."

Mr. Durkin said the union had sent proposals to the committee a few weeks ago, including suggestions that all board committees be composed of independent directors and that directors be held personally liable in instances of gross negligence. But the union received no response. As a result, Mr. Durkin said the union would bring its proposals before the shareholders at the next annual meeting.

Still, some analysts praised Archer-Daniels for agreeing to any change, given its history under its strong-willed chairman, Dwayne O. Andreas.

"The fact that Dwayne Andreas and the board were willing to announce that they would do this was a surprise to some," said Leonard Teitelbaum, an analyst at Merrill Lynch & Company. "Clearly, the board has heard the message that was delivered at the last annual meeting."

In the report, the governance committee recommends that the board be reduced from its current size of 17 to a minimum of 9 members and a maximum of 15. And regardless of the board's size, the report says, most of the directors should have no other affiliations with the company.

The report defines outside director as someone who is not a current or former Archer-Daniels executive, has no material business or professional relationship with the company, has no close family relationship with the company's management and is not receiving compensation from the company other than as a director.

On the board now, 10 directors are current or former Archer-Daniels executives, or are related to such executives. Several others have been criticized for what some shareholders contend are outside financial relationships with the company or its officers.

Under the proposals, board members who are now younger than 70 would not be permitted to run for re-election once they reach that age. According to Mr. Goldberg, that means that at least two current directors would be forced to step down this year. They are Mr. Goldberg himself and Happy Rockefeller, a longtime friend of Mr. Andreas and the widow of Nelson A. Rockefeller.

While a number of other directors will also have to step aside under the proposals, Mr. Goldberg indicated that no decision had yet been made by anyone.

"Over the next few months, there will have to be a number of people who will rethink what their appropriate role is on the board, and whether they should be on the board," he said. "It will be for each individual member, together with the nominating committee, to figure out what's best for the company and its shareholders."

The report also suggested that the compensation of directors be reviewed to insure that it is in line with that of other large companies. It said that health and retirement benefits should not be provided to any nonmanagement directors. To tie the interests of the directors to those of the shareholders, the report recommends that half the compensation of directors be in some form of company stock.

Despite what apparently was the unanimous acceptance of the proposals, the company was skittish about disclosing any action. In a statement yesterday, Mr. Andreas said that the report had his "strong support" and that he had requested that the recommendations "be seriously reviewed and considered as the framework for future implementation."He also said that the board would accept having more outside directors.

Also yesterday, Archer-Daniels said that its net income for the second quarter, which ended on Dec. 31, had risen 2.7 percent, to $226 million, or 43 cents a share. That compares with $220.1 million, or 41 cents a share, in the second quarter of last year.

The company, which operates under a great deal of secrecy because many of its rivals are privately held, does not announce its revenue figures, but discloses them later in filings with the Securities and Exchange Commission.

Analysts were impressed by the financial performance. "The numbers were surprisingly good," Mr. Teitelbaum of Merrill Lynch said. "The company is proving that it can run a business even in the most difficult environment."

Table: "Archer-Daniels-Midland Co. (ADM,N)" Qtr. to Dec 31 1995 1994 %Ch Net inc. bc225,970,000 b220,098,000 +2.7 Sh. earn .43 .41 Sh. out. 524,143,000 541,861,000 b-Included gains equal to 8 cents a share for securities transactions in the latest quarter and a loss of 1 cent a share for securities transactions in the year-ago period. c-Included charge equal to 7 cents a share for the effect of commodity price increases on last-in first-out (LIFO) inventory valuations. The year-ago quarter's share earnings and shares outstanding were adjusted for a 5 percent stock dividend in September 1995. Archer-Daniels-Midland did not disclose revenue figures, in accordance with its usual practice when reporting earnings. The results are for the second quarter. Yesterday's closing price: $17 Down 25~